Will Oregon join the cadre of states that hold a member of an LLC personally liable for his or her own conduct in furtherance of a LLC’s business? That question is currently pending before the Oregon Supreme Court in Cortez v. Nacco Materials Handling Group, Inc., et al, 248 Or App 435, 74 P3d 202, review allowed, 353 Or 103, 295 P3d 50 (2012).
Property developers frequently create single-purposes LLCs as a means of managing liability for construction defects. Recently, the South Carolina Supreme Court held that an individual member of an LLC, who supervised the construction of a multi-unit residential condominium project, was personally liable for negligence in the construction of the project. 16 Jade Street, LLC v. R. Design Construction Co., LLC, Opinion No. 27107 (April 4, 2012). While Cortez does not arise out in a construction context, the Court’s decision will certainly determine whether an individual member of an LLC may be held personally liable for negligently created defects in construction.
In Cortez, the plaintiff was employed by an LLC and was injured in a fork lift accident. The worker filed a workers’ comp claim against the LLC and received benefits. The worker then sued various parties in a so-called “action-over” claim under the Oregon Employer Liability Law (“ELL”). One of the parties the worker sued was the sole member and owner of the LLC. The trial court dismissed the lawsuit, citing the workers’ comp exclusive remedy provision. The Court of Appeals reversed, taking a narrow read of the meaning of “officers and directors” of the employer, and deciding that the legislature did not intend to include the members of an LLC when it created the exclusive remedy portion of the worker compensation statute. The court said that the statute does not expressly refer to an “LLC member or owner,” and that the legislature could have easily included LLC members when it created the LLC form of entity, but did not do so. Therefore, the court held that even though the exclusive remedy provision protects an LLC itself, as an “employer,” the statute does not protect an individual “member” of that LLC.
The Court of Appeals then addressed whether the member was immunized from tort liability under ORS 63.165, which provides as follows:
The debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, are solely the debts, obligations and liabilities of the limited liability company. A member or manager is not personally liable for a debt, obligation or liability of the limited liability company solely by reason of being or acting as a member or manager.
The defendant argued that ORS 63.165 shields it from liability because its alleged tortious conduct occurred while it was acting as a member-manager. Analyzing the text, context, and legislative history, however, the Court of Appeals rejected that interpretation of ORS 63.165. The Court of Appeals noted that the plaintiff was suing the member of the LLC for the member’s own tortuous conduct. Generally, an officer or director of a corporation who commits a tortious act, even one within the scope of his or her duties to the corporation, that officer or director is personally liable. See, e.g., Beri, Inc. v. Salishan Prop., Inc., 282 Or 569, 580 P2d 173 (1978). The Court of Appeals ultimately concluded that ORS 63.165 did not shield the defendant against plaintiff’s claims.
Thus, under the current holding in Cortez, a member of an LLC may be personally liable for his or her own tortious conduct committed while acting in furtherance of the LLC’s business. The Court of Appeals opinion has been under review since December, 2012 and an opinion from the Oregon Supreme Court is anticipated shortly.